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Healthcare ePayables 2014 Exploring Leaders in Strong Healthcare Solutions

Market Trends of Automation Solutions in Healthcare

Benefits of Automation for Healthcare

Best Practices for Choosing an Automation Solution

Profiled Solution Providers that Enhance Processes for Healthcare

© 2014 PayStream Advisors, Inc | www.paystreamadvisors.com | [email protected]

Executive Summary ......................................................................... 1

Evolution of ePayables in Healthcare .............................................. 3

State of ePayables in Healthcare ..................................................... 5

Finding an Automated Solution ....................................................... 10

Selecting a Healthcare ePayables Solution ..................................... 11

Conclusion ....................................................................................... 15

SciQuest .......................................................................................... 16

About PayStream Advisors ............................................................. 19


Executive SummaryFour years after the Affordable Care Act passed, there are still many uncertainties about how the law will be implemented, as new regulations emerge and courts continue to weigh in. While many of the details of healthcare reform could change and alter how healthcare companies do business, there is one constant: cost pressures.

Healthcare companies are under pressure to keep costs down while still providing a high level of service. Between one-third and one-half of all U.S. healthcare spending can be classified as wasteful, according to the insurance company Aetna. While most of the discussion on waste centers around redundant or unnecessary tests or inefficiencies in the system, the business operations of healthcare companies can do their part to rein in costs in their divisions.

Today, many healthcare companies are turning to automated solutions to try to reduce administrative costs, make purchasing more streamlined and accountable, and make the entire process more efficient. Though the industry is filled with new lifesaving technologies and diagnostic equipment, it has traditionally lagged behind in implementing technologies that improve back-office operations. And while the industry pushing forward with the electronic conversion of medical records, its accounting and billing operations are still buried beneath an avalanche of paper.

Fortunately, many healthcare companies are beginning to successfully turn around some of these longstanding challenges. Since 2004, PayStream Advisors has polled healthcare executives as part of its electronic invoicing and invoice workflow automation surveys and compared results with other industries and with prior years’ results. The 2014 survey revealed that healthcare companies have reaped many benefits in their implementation of automated Accounts Payable (AP) solutions, which PayStream refers to as healthcare ePayables. Specifically, healthcare companies:

» Now report that they have a more centralized AP process than companies in peer industries.

» Tend to describe themselves as “innovators” in payables automation to a greater degree than other companies

» Have made progress in the last year in implementing technologies such as front-end imaging, electronic payments, and OCR/data capture.

» Have transitioned their suppliers to electronic invoice submission to a greater degree than companies in other industries.

Understanding these recent developments has big repercussions for healthcare companies, the vendors who serve them, and ultimately, patients who consume healthcare resources. For healthcare companies, the success of implementing


automated payment solutions ehances the ability to save money and reduce errors.

This report will help companies in this industry understand the state of ePayments in 2014. It will provide a roadmap to choosing and implementing a solution that makes sense and delivers on the promise of making payments simple, efficient, and less costly.


Evolution of ePayables in HealthcareCompanies across a range of industries are turning to automated solutions to help them perform a variety of back-office functions, such as managing supply chains, paying invoices, controlling inventory, and tracking travel and entertainment expenses. As technologies have improved, companies have felt more comfortable adopting these solutions. Although these technologies require a considerable investment of money and time, over time they show their value in terms of improved accuracy, transparency, and labor savings.

Automation gap

PayStream’s 2013 report on Healthcare ePayables found that change was eminent healthcare companies’ AP departments. In large part, this was because of the heavy reliance on paper records and manual processes.

For instance, at the time, our survey found that:

» Nearly two-thirds of healthcare payments were made with paper checks.

» Fewer than half of the healthcare companies surveyed said they received, approved, and paid invoices from a central location.

» Healthcare companies were less likely to use Accounts Payable automation technologies such as electronic payments, front-end imaging and optical character recognition (OCR), compared with other industries.

A decentralized process that relies heavily on paper creates inefficiencies on a number of fronts. It can make record-keeping difficult. It slows payments to vendors, which can result in missed discounts. Human error becomes more prevalent. Ther are significant labor costs in manually keeping pace with all the paper. Finally, executives and business users are unable to easily see emerging trends.

Tough sell?

Even with these obstacles, it has traditionally been a tougher sell to automate the AP process in healthcare than in other industries. There is the usual reluctance to implement changes that might be perceived to reduce the number of FTEs as well as the perception that the finance department isn’t “ready” for the sweeping changes that automated solutions can entail.

Additionally, finance offices at healthcare companies have the burden of competing for capital-expenditure money with departments that are using those funds to buy lifesaving medical equipment. As one healthcare finance executive told us: “From a system standpoint, they look at all this patient-care technology and say, ‘How do we justify spending money that doesn’t help move our mission to improve patient outcomes?’”


Although the arguments may be challenging, the answer lies in understanding and presenting the full effects of implementing an automated solution.

In addition, new regulations are increasing the reporting requirements for healthcare companies. Automating the AP function can help meet those requirements with minimal additional effort. Besides the usual reporting necessary for auditors and, for some, to comply with recent Dodd-Frank reporting regulations, there are new regulations soon taking effect that target certain healthcare-related companies as part of the Physician Payments Sunshine Act (a provision of the Affordable Care Act). Those regulations require that specified suppliers of pharmaceuticals and medical devices track payments to physicians and teaching hospitals, then report those payments to the government. This new reporting requirement took effect in 2013, with the first public release of those financial connections scheduled for September 2014. For companies covered by these regulations, automated solutions could aid in tracking those payments.

Recent evidence from this year’s survey suggests that healthcare finance executives are making important progress in integrating automated practices into their workflows.


State of ePayables in HealthcareOverall, healthcare companies in 2014 appear to be making great progress in implementing automated solutions when compared with prior years and peers in other industries. This progress offers tangible benefits to those companies.

Centralized AP

In the 2014 survey, healthcare companies were much more likely to report that their invoices are approved and paid centrally than they were in 2013—80 percent surveyed described the process as “centralized,” see Figure 1. For the first time in the history of the survey, this percentage is higher than the corresponding overall rate among all companies surveyed, which was 66 percent.

Increased automation

In the 2014 survey, healthcare companies reported that they are using automated technologies more than ever before. A large majority reported they now employ front-end imaging, OCR/data capture, automated workflow, electronic payments and punch out catalogues. In previous years, these technologies were only used by a minority of healthcare companies.

Increased use of those capabilities might explain why healthcare companies are now far more likely to view themselves as innovators, see Figure 2. One-half describe themselves as having made significant investments in automation. In

Figure 1 Healthcare AP Operation

Models

How centralized is your AP Operation?

34%

0%

Decentralize Partly centralize

17%20%

47%

80%

Centralized

2% 0%

We outsource ourinvoice receipt andpayments process

2013 2014


all industries, less than one-third of companies described themselves similarly. On the other end, just 10 percent say that they have not evaluated automation technology and have no immediate plans to do so.

Similarly, healthcare companies are increasingly using electronic solutions in invoicing—both receiving and paying, see Figures 3 and 4. As automated AP solutions become more widespread, suppliers are becoming more accustomed to sending electronic invoices, and companies are paying more electronically instead of through paper checks or other methods.

Figure 2 Where Healthcare Organizations See

Themselves Relative to Peers

What level of P2P automation does your

organization utilize?

We are an innovator -- we havemade significant investments

in automation

15%

18%

50%

We have adopted some automationtechnology, but it is not widely

used and has limited impact

41%

39%

10%

We are evaluating some advancedtools, but have not yet

adopted them

28%

31%

30%

We have not evaluated financialautomation technology and have

no immediate plans to do so

14%

30%

10%

2012 2013 2014


Figure 3 Receiving Electronic

Invoices

What percentage of your suppliers send

invoices electronically? (percentage of healthcare

respondents by year)15%

12%10%

43%

38%

10%

20%

23%

30%

11%13%

20%

5%7%

30%

3%

7%

0%

None 1-10% 11-25% 26-50% 51-75% More than 75%

20132012 2014

Figure 4 Electronic Invoice

Payment

What percentage of invoices do you

pay electronically? (healthcare vs. all other

industries)

10%

13%

None 1-10%

20%

24%

10%

19%

11-25%

20%19%

26-50%

30%

12%

50-75%

10%

15%

More than75%

2013 2014


Benefits and challenges of eInvoicing

Automating the invoicing process, as noted above, leads to a number of favorable outcomes for companies going that route, see Figure 5. Most notably, healthcare companies who have implemented electronic invoicing say the biggest benefit has been the ability to reduce outlays on processing and FTEs.

While companies can clearly see the benefits of adopting eInvoicing, there are still challenges that must be considered and addressed, see Figure 6. Chief among these is, as expected, the issue of supplier adoption.

Figure 5 Key Benefits of eInvoicing

What do you find are the key benefits of

eInvoicing?

Fewer supplier inquiries50%

32%

Reductions in FTE /processing costs

75%

46%

Fewer lost /missing invoices

54%

50%

Better visibility50%

42%

Quicker approvals50%

51%

Healthcare All industries


Figure 6 eInvoicing’s Biggest

Challenges

What do you find are the biggest challenges to

implementing eInvoicing?

56%

Supplier Adoption

75%

62%

Internal ChangeManagement 63%

All Industries Healthcare


Finding an Automated Solution As noted above, healthcare ePayables automation solutions can offer a wide variety of benefits to companies. Most importantly, they streamline the process of receiving and paying invoices in a way that is fast, reliable, and less dependent on manual procedures. From start to finish, these solutions can improve the process. They can turn paper invoices into digitized images, extract data from the images or receive invoices electronically, store invoices in an easy-to-access web-based repository, simplify approval processing, and make payments electronically. By automating and streamlining this process, companies are typically able to match, approve, and pay invoices faster, which can result in discounts from suppliers.

Vendors who sell AP automation solutions can typically handle the process from start to finish, though they may outsource some functions or focus mainly on one aspect of the process.

The major steps in the ePayables process are:

» Invoice Receipt: Preparing paper invoices for scanning and electronic access.

» Document and Data Capture: Converting paper invoices and related documents into digital images, then capturing relevant data. Sometimes done on-site, sometimes off-site.

» Electronic Invoicing: Using an online portal for suppliers to submit invoices electronically or submit them directly from their ERP via cXML or EDI.

» Content Management: Using a system tied into existing ERP that handles delivery, storage, management, and disposition of electronic documents.

» Matching and Workflow: Matching invoices automatically and using prescribed rules to resolve invoices that do not match.

» Payment Processing: Taking steps to prepare, process, and post payments to vendors, including integration with ERP and financial systems.

» Reporting and Analysis: Analyzing purchase-to-pay metrics and monitoring users’ actions for timeliness and quality control. Some solutions have robust reporting features included, others export to third-party tools.


Selecting a Healthcare ePayables SolutionAs with many purchases, knowing your own organization’s needs and capabilities is the first step toward considering an AP automation solution. PayStream analysts believe that technology buyers should ask the following questions prior to making a decision.

» Goals: What are my financial automation goals? Do I want to start with just front-end imaging or eInvoicing, or am I comfortable migrating to an application that delivers full circle procure-to-pay functionality?

» Staffing: Do we have the required skilled staff, can we hire the needed people to manage the process, or are we better off leveraging the expertise of an outsourcing provider?

» Role: Is the automation process we are considering a core component of our business?

» Security of data: How comfortable are we with handing over our data to an outsourcer? (This becomes extremely important when dealing with financial processes.)

» Customization: Are our processes unique and unable to be handled by a one-size-fits-all approach?

» IT resources: Do we have the necessary IT staff for hosting and maintaining an in-house solution? (If not, do your homework and investigate the benefits of a SaaS solution.)

» Financial resources: Do we have the budget to cover the upfront costs associated with a technology solution?

» Control: Are we giving up any control if we decide to use an outsourcing partner? Is it better to automate or outsource? (There is no simple answer to this question. Each healthcare organization must consider its transaction volumes, existing staff and technologies, availability of IT resources, and costs to determine if outsourcing one or more of these functions would be beneficial.)

Choosing a licensed software solution, SaaS or outsourcing

Healthcare organizations investigating ePayables solutions must consider whether a licensed software solution or a SaaS option would be more suitable for their needs. A strong case can be made for licensed software solutions, which are implemented inside the company’s firewall, as ownership provides a high degree of control and security.

Another solution that is currently gaining in popularity is a SaaS model, in which the system is hosted and maintained by the solution provider. A major benefit of SaaS solutions lies in the fact that they require minimal up-front investment due to the lack of licensing, hardware, and software costs. Additional benefits include the


receipt of innovations and system upgrades from the solution provider multiple times per year. Some technology vendors charge a small free up-front to cover implementation costs and other professional services, and then charge recurring fees based on the transaction volume, while others operate entirely on a per-transaction pricing structure.

Healthcare organizations should also keep in mind that ePayables services are available through business process outsourcers. The rationale for outsourcing invoice purchase-to-pay functions is the same as it is for business process outsourcing in general. Outsourcing is a cost-effective method to remove non-essential functions without increasing costs through financial investments in software, hardware, and technology solutions.

Due to advancements in technology, the delivery of outsourced AP automation solutions can be provided expeditiously with decreased costs. Healthcare organizations must consider the benefits of outsourcing services with an established provider versus selecting in-house automation capabilities which require upgrades and staff training and/or onboarding to support automated processes. As a service delivered over the Internet, SaaS and outsourced AP automation solutions may be deployed faster and less expensively than software solutions that require extensive integration with enterprise legacy systems.

All three options outlined have advantages, disadvantages, and associated costs. The choice of solution depends entirely on the individual healthcare organization’s requirements and specific needs. A critical factor to consider prior to making a decision is the total cost of ownership, which includes:

» Implementation and integration costs

» Functionality fit

» Ease of use

» Ability to adapt to a constantly-evolving healthcare landscape

Vendor selection

Once you decide on the type of ePayables solution, the next question should be, “How do I choose a vendor to work with?” Implementation of any solution requires due diligence, but due to the sensitivity of information in the healthcare industry, HIPAA regulations and privacy concerns, choosing an enterprise healthcare electronic payables vendor demands even more research and evaluation.

While all ePayables solution providers seek to deliver operational and strategic benefits to healthcare organizations through their solutions, they differ significantly in their approach. Some of the vendors offer solutions that address the entire purchase-to-pay cycle, while others focus heavily on front-end data capture or workflow management areas. Some offer their solutions in a SaaS or outsourcing format, while others deliver their solutions via a software license model. To help


distinguish between the diverse vendor strategies and identify solutions for further investigation, PayStream provides information on factors that determine the solution of choice.

Technology approach

There are a number of things to consider in terms of technology when deciding on a solution that will fit your specific needs. While best-in-breed security standards are important, backups, redundant sites, infrastructure and platform capability, and methods of data retrieval need to also be top considerations. Many users need a solution that can interface easily with existing accounting, health information management (HIM), or materials management applications; for others, a standalone product is fine. Web-based or on-demand solutions can lower the up-front costs of implementing an ePayables solution and should also be considered.

Financial stability

While economic conditions are improving, any solutions provider can still be vulnerable. Mergers and acquisitions happen frequently and are not necessarily a cause for concern; it is often easier and less expensive to acquire a product than to develop one from scratch. What should be a concern is whether a company has the financial wherewithal to support ongoing development and retain valuable technical resources.

Cost

Many solutions available on the market today are offered in a SaaS model, which can lower the investment required to get started. Still, fee structures can vary greatly. Be sure to inquire whether there is an implementation fee and if fees are based per transaction. Some solutions are sold by module, and you may need multiple modules in order to get all of the features you want.

Scope and industry experience

In the healthcare industry, supplier reach is critical. The more suppliers that are onboard, the greater the number of electronic transactions that can be processed, improving efficiency and lowering costs. A delay in a shipment of healthcare products could have a direct impact on patient care. Therefore, maintaining and strengthening relationships with key suppliers should be one of your goals.

The complexity of HIPAA regulations and EOB forms, coupled with a multitude of medical billing formats and coding standards, can make healthcare industry experience a major selling point for vendors.


Prior to purchasing a solution, be sure to follow these basic steps:

» Perform a current state analysis and design a future-state roadmap.

» Benchmark to identify existing issues and develop a strategy to resolve them.

» Create a business case that clearly demonstrates ROI.

» Form a steering committee that includes representatives from IT, finance, end users, and upper management, and get the buy-in of everyone involved.

» Determine requirements, taking into account budget, user needs, resource allocation during and after installation, training, support, and service level agreements.


ConclusionClearly, healthcare companies are moving quickly to replace the traditional AP model of receiving paper invoices, processing them manually, then cutting checks to suppliers. They are partnering with vendors who are streamlining those processes by encouraging suppliers to submit eInvoices, digitizing paper invoices, and creating systems that allow business users to track and approve payments on their computer. When it comes time to pay, many of those payments are now electronic. These new processes provide greater speed, accuracy, and cost savings to organizations that use them.

There are, of course, challenges. These systems cost money, which can be scarce. Not all suppliers are comfortable with electronic transactions. A company’s internal processes and culture could present roadblocks to taking advantage of a fully automated solution. However, companies that have made the switch to more automated solutions report that it is working well. Being able to articulate why an automated solution is a wise choice for your organization is an important first step in making it happen.


SciQuestSciQuest Inc., based in Raleigh, North Carolina, is a provider of cloud-based business automation software for spend management. Since it was founded in 1995, SciQuest has been focused on delivering an easily configurable customer-centric solution backed up by exceptional customer service that sets it apart from others in the industry. They have over 80 customers in the healthcare industry from various sectors, including hospitals, university medical centers, pharmaceutical and healthcare research companies, and non-clinical healthcare services firms. The SciQuest Spend Management Suite offers a number of products that allow customers to manage their spend, suppliers, contracts, sourcing, shopping, inventory, and accounts payable more efficiently.

Website www.sciquest.com

Founded 1995

Headquarters: Morrisville, North Carolina

Number of employees 550+

Number of customers 534

Partners / Resellers Platform vendors: Ellucian, Lawson, Microsoft Business Solutions, Oracle, SAP, Unit4. Technology partners: Hubspan, ROi. Consultants: Archstone, Huron, IBM, Navigant, RPI, Corbus.

Awards / Recognitions 2014 American Business Awards Finalist, 2014 Supply & Demand Chain Executive 100 Award, 2014 Inbound Logistics Top 100 Logistics IT Provider Award, 2013 North Carolina Technology Association 21 Award, 2013 Green Supply Chain Award Winner.

Solution Name SciQuest Spend Management Suite

Year Introduced 1995

Solution Overview

SciQuest’s offerings are cloud-based and are offered through an annual subscription license. SciQuest has extensive experience integrating with more than 40 different ERP solutions, including Oracle, PeopleSoft, Banner, McKesson, and Lawson. Of particular interest to hospitals and other healthcare companies, SciQuest can also integrate with materials management or inventory systems. Item master data can be imported from the inventory system and matched against contract or catalog items. In addition, SciQuest can obtain inventory data from the ERP system, or have it loaded by batch so users can view item availability.

SciQuest’s software is scalable, so companies can implement as little or as much as they need. The eProcurement and Accounts Payable solutions are core product offerings, but related tools in the Spend Management Suite are also available,


such as Spend Analysis, Sourcing, Contract Lifecycle Management, and Inventory Management. Workflow services are a standard component, and add-on options, such as imaging services, are available through a partnered solution called Digital Mailroom.

Invoice Receipt

SciQuest has broad flexibility in the way it accepts invoices. It can handle a variety of formats, including paper, cXML, EDI, PDF, eFaxes, and more. With the receipt of invoices compatible with the full suite of SciQuest tools, companies can gain a complete picture of the spending within their organization.

Document and Data Capture

SciQuest’s Digital Mailroom converts paper invoices into electronic formats. Suppliers send paper invoices to a customer-specific post office box in a processing facility of SciQuest’s partner, EDM Americas. EDM digitizes the invoices through double-blind keying for increased accuracy, and the invoices are typically available within days for customer processing. SciQuest customers can also use their own invoice capture/digitization solutions that are integrated with SciQuest Accounts Payable.

Vendor Portal

SciQuest offers a portal for the submission and management of electronic invoices through AP Director. Companies can configure 2- or 3-way invoice matching to meet their business requirements. AP Director can also be customized to allow for manual matching of invoices that fall under certain parameters or that fail the initial match criteria. Advanced Dynamic Matching (ADM) allows companies to establish complex matching rules through the application or import process.

Content Storage and Management

SciQuest’s AP solution stores images of invoices for use in data checks and validation, as well as for record history. The software offers a document search function that allows users to quickly find the documents they need to accomplish their tasks quickly and efficiently.

Workflow Management

SciQuest’s software is highly configurable to accommodate a wide variety of preferences. The workflow management, known as Advanced Dynamic Workflow, is a SciQuest-developed solution that allows customers to adapt the system in a way that best suits their needs. The workflow can be configured for tiered

approvals, out of office directions, and rules based on purchasing specifics, such


as requisition total.

The system allows administrators to assign roles and define the scope of access based on those roles. Administrators can change a user’s role at any time and can also change the restrictions and privileges of different roles, providing flexibility in administration.

The Advanced Dynamic Workflow allows customers to set automatic escalation for customer-designated trigger points, and can also send reminders to complete approvals. In addition, it provides a real-time graphical display of workflow, allowing everyone in the process to view the status of the document.

Reporting and Analysis

With SciQuest, supervisors can see the overall processing metrics in their divisions, allowing them to analyze workloads and detect bottlenecks in the process.

The software can integrate with outside reporting tools. It also offers pre-configured reports and allows users to sort and configure data in report tables with easy export capabilities. In the eProcurement solution, SciQuest offers reports for organizational spend, top items purchased, cycle time, invoice reports, catalog summary reports, spend summary reports, purchasing reports, consortium spend reports, and spend analysis reports. The results can also be exported into Excel or database formats for additional data analysis.

Pricing and Implementation

Companies that choose SciQuest should expect to pay for initial implementation and for an annual SaaS subscription license. The average time required to implement the software is in four to six months. The length varies depending on the products implemented, the availability of resources, the customer’s technical capabilities, and the timeliness of process and policy decisions.

SciQuest prides itself on offering comprehensive implementation and support services. The implementation consists of four major phases—Initiation, Solution Specification, Solution Build, and Solution Deployment—and companies can also choose to stagger implementation by function or business unit.

SciQuest typically provides training for the project team before, during, and after implementation. Before the software goes live, SciQuest works closely with the company to understand different business scenarios unique to the company and to suggest how the software might be configured to address those typical workflows and contingencies. On an ongoing basis, SciQuest’s Customer Support Team is available 24/7 by telephone, e-mail, and web-based interaction to address any critical issues that arise.


About PayStream Advisors PayStream Advisors is a technology research and consulting firm that improves the way companies plan, evaluate, and select emerging technologies to achieve their business objectives. PayStream Advisors assists clients in sorting through the growing complexities of IT applications related to business process automation with the goal of making objective, analytical, and actionable recommendations. Wherever business process automation technology is an issue, PayStream Advisors is there to help. For more information, call (704) 523-7357 or visit us on the web at www.paystreamadvisors.com.

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